Eskom debacle unpacked
The utility’s failure to adopt sound management strategies has cost taxpayers billions
IN JULY, Eskom released its muchdelayed financial results. Poor results revealed a net loss of R2.3billion and an amount of R19.6bn that was attributed to irregular expenditure.
The utility claimed that 60% of incidents were related to administrative non-compliance and noted that irregular spending was not necessarily fruitless and wasteful expenditure.
With an amassed debt of R399bn by the end of March, according to data compiled by Bloomberg, it will take a mountain of concerted effort to move the utility into a sustainable, profit-making organisation.
As rescue strategies are fleshed out in the coming months, a critical question to ask is how Eskom came to be so woefully mismanaged.
If one is to take a step back to see where the utility went wrong, there are clear indications that inadequate monitoring because of unsatisfactory internal processes and a poorly applied organisational structure, allowed flawed decisions and critical actions to go unchecked.
A decade ago in a bid to meet South Africa’s expanding power consumption, Eskom embarked on one of the world’s biggest projects. A mega-structure power station, named Medupi, was to be developed in Limpopo Province. The cost of producing the power station would be R80bn.
This year, the production of Medupi only now nears completion. According to the station’s director, all units will be fully operational by 2020.
The Medupi project has endured numerous delays over its lifetime with an overspend of R52bn.
Complex projects like Medupi require large-scale outsourcing to multiple stakeholders with the incorporation of varied time lines and deliverables and the development of different risk profiles. Project-based organisations (PBOs) are able to handle this complexity due to their governance frameworks and structure that gathers human resources and supporting processes around the development, implementation and completion of the project.
PBOs are substantially different to routine organisations, which rather use the principle of specialisation based on function or role. In a routine organisation decisions are decentralised since issues are delegated to specialised persons or units.
Eskom appears to have been structured as a routine organisation, which is a fundamental shortcoming. Power stations are – or should be – discrete projects, each with their own life cycle, cost centres and risk profile. Eskom’s management of its power stations has resulted in sub-optimal development and management, and ultimately delivery.
Central to the PBO, the core team represents all the disciplines from departments or functional units that are necessary for successful project implementation. The core team remains visibly active throughout the duration of the project because the team carries with it the institutional memory. In terms of Medupi, it is doubtful whether Eskom has had one core team since the project’s inception.
The utility then worked with Hitachi to bring Asian welders to the project.
Additionally, although it was recognised up front that there were insufficient competent engineering practitioners to execute Medupi, and a resultant strategy was formulated to contract large and multinational engineering companies, their roles and responsibilities were not clearly defined.
As a result, the decision-making and processes to be followed were highly protracted and resulted in significant delays.
To succeed in the long-term, the utility should ensure that its expertise dominates all plans. Plans should be project-based and complemented by stringent evaluation processes. When specialist project teams are gathered, it is critical that those specialists have the supporting knowledge and experience to drive each aspect of the project.
Ongoing compliance must be supported by stringent checks and balances at regular intervals built into the project’s timeline. When concluded, all projects should be completed using a standardised concluding process based on best practice, and should be uniformly monitored and evaluated using external parties to provide credible audits.
Risk management must be both immediate and insightful, complemented by robust disaster management that enables quick turnaround times on decisions.